Companies Saying No to Earnings Guidance

Overall, the survey of 609 investor relations
professionals revealed more than three-quarters said their
companies provide earnings guidance, but a growing number
of respondents said they were considering discontinuing the
practice, according to data by the National Investor
Relations Institute (NIRI) reported by Dow Jones.

The majority of those considering discontinuing the
practice (67%) said that the idea came from senior
management.
However, 16% of corporate directors sitting on audit
committees are also be getting cold feet about issuing
guidance, now that panel members have greater
responsibility to monitor earnings releases.

These numbers do not mean that companies will clam up
with information though.
The study points out that guidance takes a number of forms,
ranging from a precise estimate per share to revenue
guidance to help with analyst earnings’ models.
Therefore, even companies that say they no longer give
guidance may still offer up other information, such as
trend data that may affect business, qualitative statements
about market conditions, and quantitative information on
business measures and assumptions.

Reasoning

Executives cited a plethora of reasons for discontinuing
guidance, namely, the lack of “visibility” on future
earnings to concerns that trying to meet projections places
too much emphasis on short-term results.
Additionally, some critics have said the Wall Street
earnings estimate dance helps create a mindset that leads
to earnings management, and even accounting games.

One very high profile critic of the practice of earnings
guidance is Securities and Exchange Commission (SEC)
Chairman William Donaldson.
He believes the negative impact on shares when companies
miss forecasts, creates a “terrible temptation” for
executives to manipulate earnings.

Among the companies announcing new limitations on
specific earnings guidance are: